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Strategies to Collect Prompt Payment for the Work Performed AIA

Eugene Washington, PE

 


This program is registered with the AIA/CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement by the AIA of any material of construction or any method or manner of handling, using, distributing, or dealing in any material or product. Questions related to specific materials, methods, and services will be addressed at the conclusion of this presentation.


PDH Online | PDH Center


5272 Meadow Estates Drive
Fairfax, VA 22030-6658

Phone & Fax: 703-988-0088
www.PDHonline.com
www.PDHcenter.com

An AIA/CES Registered Continuing Education Provider (#J681)

 



Course Outline

  1. Importance of cash flow
  2. Show the client you are serious about prompt payment
  3. Prequalify you to work for
  4. Let the owner know at the outset prompt pay is expected
  5. Negotiate favorable payment terms and late pay penalties
  6. Precisely define the scope of work to be done
  7. Conduct business to withstand court scrutiny
  8. Establish that the money for the contract amount is secure
  9. File lien notices and perfect when due
  10. Common ploys to delay or deny payment
  11. Right of reasonable specification interpretation
  12. Negotiate change orders before the work is done
  13. File timely notification of changes
  14. Recognize and counter stonewalling tactics
  15. Learn basic contract law
  16. Being prepared to go to court

Learning Objective

This course will alert the reader of the tactics that are commonly used to deny and delay payment to the contractor. The course discusses strategies for achieving prompt payment for the work performed. By being prepared and anticipating the mechanisms the owner will employ to cheat the contractor and countering them with successful tactics will greatly improve the chances of being paid on time and in full.

At the conclusion of this course, the student will learn:

Course Introduction

As a contractor you will be subjected to any number of unethical and often illegal efforts to delay and deny payments to you. The lesson to be learned from this course is to never allow such efforts to go unchallenged. I learned that lesson the hard way. When faced with the problem of collecting payments on time and in full, look for stratagems that will not only counter their ploys, but actually increase your profits in the process. If the owner comes to believe you can and will turn their own tactics against them, you have gained a huge advantage. It is a largely a question of intimidation, if they think they can cheat you and get away with it, they will do it every time. If you can turn their cheating around and profit from it, they will treat you with much more respect.

Course Content

Everyone and every organization survives by timely cash flow. The only difference between a company and a government is how profit is measured. The company profit earnings are reinvested or distributed. A government entity will use tax increases to expand it’s services. Most individuals live largely pay check to pay check. If a company or a government fails to issue wages in a timely manner, bills cannot be paid and severe financial problems will be experienced for the wage earners. Most of us are complacent because we can rely on paychecks being issued on a fixed and predictable schedule. Payment for construction and design services should be predictable, but all too often payments are delayed or denied altogether. Anticipating and preventing payment delay problems is a major part of doing business.

In order to use the money it must first be collected. The collection process cannot be taken for granted. Collecting payment is mostly a matter of attitude. If you appear unconcerned, the owner will not have an incentive to pay promptly. If you insist on full and prompt payment you are much more likely to get the owner’s cooperation.

I know of one contractor who sent a supervisor to the offices of every client on the day the payment was due and would wait until the check was handed over. In another case the president of a large company flew to a foreign country and told the finance minister that they were doing business in 30 countries and being paid in 29. He said that as of the next day they would be working only in the countries in which they were being paid. He flew home that same day with payment in full. I once ran a construction project that involved a joint venture between a Federal and a State agency. About three months into the work I was informed that none of the first two progress payment requests had been received. I asked for an immediate meeting with the construction manager and the agency representatives. During the meeting it was carefully explained the complex and tedious steps required by all parties. The construction manager said that they waited about nine months for progress payments. I told them that only four people in the world knew how much we were owed and they were all in this meeting. I informed them that they were in breach of contract for nonpayment and we would issue a five day termination within the hour. We were paid in full by the end of the week and promptly paid after that, including change orders.

Often the first mistake is made before the bid. Bids are commonly and ignorantly tendered to owners and construction managers that have no intention of paying for the work in a timely manner, if at all. Many agencies and owners know that they can rely on the legal system to delay payment for years. The high cost and distraction of suing usually means it is not worth going to court over disputes that are worth less than several hundred thousand dollars. They are well aware of their ability to protract the legal process for years and will use that tactic to force settlements for a fraction of the worth of the work performed. You should make concerted effort to really know the reputation and credit history of the owner and any associated construction managers. Ask for references, such as banks and other contractors. You can get a Dun and Bradstreet financial report. I once called a bank reference supplied by the developer and was told by the bank manager not to trust the guy as far as I could throw the bank vault, one handed.

Why waste your time and money bidding to an owner you know is going cheat you and cause an out of pocket loss? There are very few owners that are completely trustworthy and in order to stay in business we often have work for owners and contractors we would prefer not to. The best we can do is weed out the worst and refuse to bid to those few. But for the majority there are ways to minimize losses and encourage prompt payment. I believe too much emphasis is placed on revenue volume and too little on quality projects that will earn a good profit. Yes, every company must compete aggressively for every project they win and it is a never ending struggle. They also must earn a minimum revenue each year to pay for overhead and equipment costs before a profit can be realized. On the other hand there is far more work to bid than any one company can effectively price. First, find the markets and the owners that will allow you to make a profit. Then give your best efforts to win work from those owners. We have kept lists of clients and categorized them by A, B, C and D. A clients were our preferred and favorite people who we would give our best price and service to. B clients were average we would bid aggressively to those individuals. For the C clients we would include a contingency for being cheated. The D list was a do not bid to under any circumstances.

The tone for prompt and full payment starts in the preconstruction conference. Usually, the word profit is avoided at all costs. That is ridiculous. The project was bid to make a profit. It should be made clear to the owner that you bid on their work to make a profit and you expect their cooperation. "Partnering" is the buzz word of today. In fact it is nothing new, but it is often perceived by the owner solely as a mechanism to manipulate the contractor. They want something for nothing and will try to force the contractor into upgrades or procedures that were not necessary, required or specified. It should be made clear that you are there to do the quality of work specified, nothing more and nothing less , you will be the sole judge of safe methods and procedures.

Progress payment procedures and notification requirements will generally be discussed at the preconstruction conference. Usually progress payments are predicated on a number of requirements such as paid invoices, preliminary lien releases, schedule updates and other documentation. The contract language almost always requires progress payments to be made within thirty days of approval. Sometimes the owner will impose a complex procedure that will give an excuse to delaying the payment. We have had them say that their internal procedures will take maybe 45 days or longer. My response is that: "You set the terms of payment by contract, you are expected to adhere to them." I sometimes ask the owner’s representatives how often their paychecks are late and why should we agree to a lessor than specified service?

In the private sector and between the prime contractor the contract terms are negotiable. The time to establish payment terms is before signing the contract. We try to insist on a AGC (Association of General Contractors) in lieu of the AIA (American Institute of Architects) contract form. The AIA form can be very onerous with numerous clauses that require excessive notifications, and even arbitrary terms that are all designed to entrap and deny rights to the contractor. The AGC form is shorter and much fairer to all parties. On one job we successfully bid for about a $100,000, the owner sent an 800 page contract form for us to sign. We refused to even read the document and performed the work on a letter of intent. Negotiate the payment terms, try to insert interest and penalties for late payments. If they demur, ask if they intend to pay on time and if so why will they not accept normal late payment terms. Be very wary of high liquidated damages or harsh penalty clauses. The owner may see these as revenue sources and actually make a concerted effort to cause delays and impose exaggerated penalties. Establish the progress payment cut off dates and payment due dates. On a few jobs have we asked for and received weekly payments.

Be sure that the scope of the contract is clearly and precisely defined. Do you get paid in full at the completion of your work or do you have to wait until the project is completed by someone else? What if the project is terminated or experiences lengthy delays? When does your warrantee period end? Can you be unilaterally back charged for liquidated damages or repairs of damage caused by others? Often the owner will attempt to make the Design Engineer the sole authority for payment, change orders and dispute matters. This is a very pour arrangement. How can you expect the design engineer to readily admit their errors and recommend to the owner to pay for their mistakes?

One time we negotiated a rough grading scope for a subdivision. The developer slipped a finish grade tolerance note into the plans that we did not catch until much later. When we protested that was not what we verbally agreed to he said it's in the contract you signed, do it or you won’t be paid, if you don’t like it I will see you in court. Oops, guess who got to finish grade the project with no reimbursement? You can be sure all the local contractors were immediately made aware of the stunt the developer pulled on us. The point is to be absolutely sure of what all the terms and conditions you are agreeing to.

Another major issue is to establish where the money for your price is coming from. When dealing with private entities it is often in the best interest of the prime contractor to insist on receiving an escrow account or an irrevocable letter of credit from the bank for the contract amount before the start of work. Also, try to eliminate or reduce progress payment retention or get at least a securities in lieu of retention clause. Insist on a stop work for nonpayment clause. If the owner has his lawyer negotiating, it is best to back off until your own attorney can become involved. Remember, every right you give up in the negotiating process will be lost forever and every right you gain is a potential money maker. Try to be reasonable, but if the other party refuses reasonable safe guards for your rights, you are probably better off not doing the work.

As soon as a mutually agreeable contract is executed, file all the appropriate preliminary lien notices. This is often an interesting test. Sometimes the owner will express anger and accuse you of mistrust. You then can be sure you are dealing with a nonprofessional or someone who is already planning to cheat you. Any time someone makes a concerted effort to convince you that not to take the legal and normal steps to safeguard your rights is someone to be very wary of. If payments are late, perfect the liens. Preliminary lien rights have a short duration, If they are allowed to lapse, you lose some of your powerful legal right. This action will usually provoke a stream of righteous wrath, but it will aid in getting paid. I once had a developer having his lawyer draft a long and threatening letter after I had a lien perfected. A couple of days later the owner called and asked if I had received the letter. I said yes, it was laughable; so, when can we expect payment in full including interest and penalties or should I just go for ownership of the subdivision? We received payment in full in less than a month.

You will often be subjected to long sad tales of hardship from the owner. The owner will then drive back to his multi-million dollar manor in his limousine. The owner probably earned those perks by convincing contractors to forgo just payment. Another great ploy is the owner claiming to be your friend and suggesting that there is no need for friends to file claims, a handshake will do, I will take care of you. When that happens, file the legal claims just as fast as you can, because you have a real rat on your hands.

Another common ploy is for the owner to claim he is short of cash and cannot pay for a few days. But if you will agree to a 10% discount, you will be paid immediately. The owner is relying on the fact that you have bills to pay and payrolls to fund and is hoping you are desperate for cash. This can be countered with a sympathetic attitude, such as: "We understand and would be glad to help you, we can accept a 90% payment but we will have to use lessor quality and cheaper materials for the remainder of the work. Another way we can go is to agree to defer payment for a high interest rate and collateral worth at least ten times the money that is deferred, which would you prefer." This puts the owner in a box. If he doesn’t pay, you have grounds to stop work because he has admitted he doesn’t have the money for the work, or he pays the 90% in exchange for an amended contract terms. Make every effort to negotiate favorable terms that will actually increase your profits if you are not paid as agreed. Try to keep all your lien rights intact for all moneys due. In any event, try to stop this ploy the very first time or you will probably end up losing 10% of every payment. If the owner sees that you will counter his demands with an effort that will increase your profits and cost him money, he will probably not try that tactic again. But you should assume that he will continue to try other tricks to cheat you. It is a never ending game with some people, they derive some sort of perverse pleasure by defrauding others.

It should be noted that the courts generally take umbrage with the owner who delays or denies payment solely in an effort to blackmail the contractor into agreeing to lessor payments. Express your dissatisfaction in writing to the owner as soon as you are in receipt of the partial funds.

The oldest tactic is the claim: " The check is in the mail" This was probably invented by some caveman scrooge in the stone age. It is a tried and true lie that is used all the time. The best way to handle that is to say: " The check is probably lost somewhere in the postal service. Why don’t you put a stop order on the check and we will pick up the replacement tomorrow morning at your office or we can meet you at your bank." You can also offer to pay for overnight express delivery.

Another area is specification interpretation. Often the owner’s representatives and engineer will attempt to impose their interpretation of the plans and specifications. In most public works law the right of reasonable interpretation is the contractor’s prerogative. That is because usually if the contractor takes exception or conditions its bid, the tender will be declared non-responsive. Make sure the representatives know that you are aware of that fact and intend to exercise that judgement. If the owner wants something more, be willing to cooperate, for your price. If there is any cause for doubt or concern, make sure the contract documents are modified to your satisfaction or price contingencies into your bid.

Courts tend view private sector contract in a much stricter manner. That is because it is presumed that the contractor had the reasonable opportunity to negotiate the terms and scope of the contract. You will very likely be held to the provisions you signed. Verbal understandings usually carry very little weight in court, unless in the unlikely event you can provide a preponderance of unbiased third party testimony and documentation. Any prior letters, clarifications will generally be ignored in favor of the latest executed contract.

The best way to be able to insist on prompt payment is to give the owner no excuse to withhold payment. That means aggressively making sure all required documentation is prepared and presented to the owner on or before the progress payment cutoff date. It also goes hand-in-hand with doing quality work. You should have the reputation of doing what you agree to and also not doing what you refuse. The owner should be able to take you at your word. On the other hand don’t trust the owner to live up to verbal commitments. Usually there is too much politics on the owner’s side to allow verbal additional extra cost agreement issues to be firm commitments. Document the discussion in writing to the owner. If the representative objects to such letters, you know you are probably dealing with a person who cannot or will not admit their verbal agreements. In that case, redouble your effort to ensure all parties have written documentation of verbal discussions.

Another thing to remember is that you should conduct your business in a manner that will withstand court scrutiny. Expect every piece of paper you generate and every discussion to be a court exhibit. Keep thorough records of each day’s events including discussions, crews and equipment operations. Every letter and log should be written in a business and professional style. When disagreeing, cite only the relevant facts, resorting to personal or abusive language will only damage your cause. I have seen a number of dispute cases settled out of court successfully for the contractor due to the fact that owner’s lawyers could not attack the documentation. I have also seen a number of contractor’s legitimate claims fail because the contractor could not produce sufficient documentation to substantiate the demand for payment.

Change orders and claims can be the most difficult items to collect payment in a timely manner, if at all. Most contracts require an agreed price prior to performing the work or in the event of failure to agree on a fixed price, then payment will be made by force account (time and materials). When doing force account work insist that the owner’s representative signs and agrees at the end of each day with all materials, labor and equipment that were used that same day. Refuse to proceed if you cannot get a sign off for the extra work, because it is likely they will try to deny at least some of the costs incurred. Some contracts contain clauses that in the event of a dispute the contractor must proceed with the work. This dispute clause is often used by the owner as an excuse to delay payment until after the work is complete thereby placing the contractor in a weak negotiating position.

Once I did a study and discovered that about 17% of all our revenue came from change order work. Since our average job take home (profit before home office overhead) was less than 10%, without the change order revenue we could not stay in business. For this reason receiving fair and prompt change order payments should be a top priority. Often the project staff is overwhelmed just trying to manage the work and allows themselves to be cheated by a reassuring owner: "Don’t worry we’ll take care of you, just concentrate on getting the work done and we will sit down and work all this out later." You can be sure you will be taken care of, all the way to the cleaners. If the field staff cannot keep up with the change order pricing, send someone to the job site to price the changes for them and try to include this added person as a direct cost in the change orders..

There are ways to improve your chances of collecting prompt payment for change orders. First, estimate the change in cost as soon as possible. You are in a much stronger negotiating position if you present your price to the owner well before the work is to be done. Press for prompt negotiation and formal agreement. If you cannot reach agreement before doing the work, reaffirm your price in writing, stating you are proceeding under protest and state that you expect to be paid by progress payment for the change work. Submit the request with every progress payment. It may not get you paid as fast as you like, but it places the owner in a weak legal position as you have established a price before being directed to proceed.

Force account for small work is usually covers direct cost only. The contract markup percentages usually barely cover field overhead, For large force account work that seriously impacts the project schedule and disrupts the work, it is a losing money proposition unless extended overhead and delay costs can be recovered. This can be a major issue if other work and resources are forced into winter weather conditions, causing massive and often unforeseen impact costs. Be sure the owner is well aware of the impact cost potential as soon as possible. If the owner comes to believe you withheld the information to entrap them into unforeseen added cost, they will often refuse to pay. They may even be able to convince a judge and jury that you unlawfully withheld vital information that was necessary to properly manage the project. You lose. It is far better to keep the owner fully informed. It is not going to do you any harm in the long run, and it may be greatly beneficial to receiving payment for the extra impact costs.

Price the change order fairly but generously. Recognize the fact that you must give up something to the other side so that they can look good to their bosses. Do not give in easily, make the other side believe they had to work hard to get you to agree to the price reduction and you are not happy with the agreement. They will then forward their recommendation that it is a good deal for the owner and they won the negotiation process. I usually build in fifteen to twenty percent of negotiating money that can be given away and still have profitable work. That way the price does not appear outrageous and there is some room to negotiate. Try to figure out what your opposite number is looking for and give them items they can concentrate on. In one arena I found simple math error correction usually satisfied them, so I would use that tactic on about a third of the change order presentations and our price would be routinely accepted when the math correction was made. Of course I made a great show of embarrassment and confusion, stating I was under extreme pressure to price the change very quickly.

Sometimes the negotiator will try to personally attack your credibility. In one instance, a Government owner brought in a five man survey team and spent weeks on the project. During the first meeting to present their findings, they claimed our survey control bench marks were inaccurate by several inches in all directions. I refused to accept that statement. After the control was proven to be accurate, a second meeting was held to represent their findings. I immediately stood up and declared: "If your ace surveyors can’t even find the job, how can we believe any thing they say?" End of issue. In another design error dispute with the same Government owner, their Chief Engineer maligned my engineering competency. We proved our engineering calculations and worked up a change order price to correct the design deficiency. The Chief of Construction came to me and asked why our price was so high. I told him there was $100,000 built into the price for the privilege of trying to malign my character. The change order was paid in full and the question of my engineering ability was never an issue after that.

You should learn construction law and how to give depositions and testimony not only in court but in negotiations with the owners representatives. A quick and fair settlement is often a function of how clearly and comprehensively you can argue you request for payment. You must know the plans and specifications better than the owner. The request for additional payment presentation must be accurate, reasonable, justifiable and be as thoroughly documented as possible. The use of published productions such as Means or other historical costs are usually accepted. The Blue Book for equipment costs are often a basis for determining equipment costs. The U.S. Corps of Engineers uses an equipment costing method that generally requires extensive analysis and documentation in order to achieve fair pricing. Invoices and written quotations from subcontractors and suppliers should be included. Be prepared to discuss the detail such as small tool allowances which may include power tools, hard hats, safety belts and the like. I once was told by a negotiator that he did not believe a Cat D8 tractor was worth a hundred dollars per hour. I asked how much he was reimbursed for driving his own car while on business. He said $0.25 per mile. I said if you average forty miles per hour you get paid $10.00 dollars per hour, is that fair? He said yes. I said the Cat D8 weights about 20 times as much and burns about ten times the fuel and costs more than ten times as much to buy as your car and is working rough ground, not rolling on pavement. So why isn’t it worth 10 times the reimbursement of your car?

We had no problems with equipment pricing after that.

Usually there are extensive notification requirements in the contract documents. Many large claims for additional payment have been lost merely because a brief notification was not given to the owner in a timely manner. It is always better to notify the owner in writing as soon as you become aware of a potential problem or design error. On one project I notified the owner of about one hundred design errors as the job progressed. Every notification response was to the effect that they were the all knowing designers and we were just dumb grunts hired for our strong backs. I filed the response away. When the problem finally had to be corrected, the owner would accuse us of deception and using inferior materials. We then reminded them of our letter of some months earlier and demanded a redesign and an agreed change order before we would proceed with the correction. For the first two or three such events, they demanded we proceed with the extra work prior to receiving a formal change order. We said that they obviously did not believe our thoughts were important, so how could we trust them after they blatantly and erroneously accused us of fraud. We priced the change order as quickly as possible and negotiated a change order before doing the work.

A common tactic to reduce or deny payment is for the owner’s representatives to protract the negotiation process. They will hem and haw, ask a number of questions and retire to mull over the answers. They will then return with a longer list of questions. They will try to keep this routine going until you give in or completed the work on good faith and they have you at their mercy. This is a difficult tactic to counter and it wastes a lot of your time. One old deaf contractor would lean back, make a show of turning off his hearing aid and calmly wait for the other side to stop talking. He would then turn the hearing aid back on and ask if they were willing to pay his price. He got his price more often than not. After I have recognized this tactic, I have said: "Obviously, you do not think we are offering you a fair price, why don’t we forget it since we are not going to come to an agreement. You can have someone else do the work after we are gone." I make that comment while collecting up my papers and stashing them in my briefcase. Usually, that brings them to the table or the issue is dropped.

The owner’s representatives will often employ a number of tactics to reduce payment even after an agreement has been reached and the change formalized. A common technique is stonewalling, delaying the incorporation process indefinitely with the excuse that it must be authorized by the payments due department and nothing can be done. Usually about all you can do is wait for the right moment. When the owner is in a tight spot and needs a change, you can say no, we haven’t been paid for the previous work and we are not doing any more change order work until we get paid. Be sure you are on solid ground and the money involved is significant to lend credence to the statement. A response will sometimes be that the disputes clause prevents you from stopping the work. My answer to that in the first place there is no dispute, you are merely defaulting on agreed payments and in the second place the disputes clause presumes that the owner is diligently, fairly and promptly attempting a reasonable resolution. Since the owner is blatantly withholding money due for no just cause a contractual breach has occurred. This usually puts them in a panic when you go on to say that they are in breach of contract and are considering terminating the work. Often this will spur the owner to prompt and favorable action.

The clause where work is to proceed during disputes is a powerful weapon at the owner’s disposal. For small issues it is best to complain and continue to nag over the small issues and maybe trade them later for more important changes, but continue the work. A contractor can get into serious trouble if the court finds he has defaulted for no substantial reason. However, under special circumstances the contractor can effectively refuse to proceed. These involve major change orders and directives that are well outside the scope of the intent of the contract and represent a cardinal or constructive change to the work. Such directives must also be large enough that at least the project profit would be lost if contractor proceeded as directed. A small contractor has a much better chance of having that refusal withstand scrutiny than a large contractor due to the fact that proceeding could bankrupt the small business. Before stopping work a good construction attorney should be consulted and should be involved with the dispute process to be sure all the proper legal steps are taken.

Keep in mind that the owner has a vested interest in completing the project in a timely manner. They have commitments to fulfill and are usually not in a position to accept protracted construction delays while wrangling over disputes. Sometimes your tough but fair approach will result in petty harassment. Don’t put up with it. On one job the owner was supplying the surveying services. When we got into a dispute, somehow the surveyors could not be found to layout and check the work. After a couple of days of this we informed the Resident Engineer in writing where and when we needed the surveyors for the next day’s work. We kept a log of when and where they actually showed up to do the work. At the end of the week we submitted a documented claim for all the delays. The Resident Engineer panicked, he could not tell his bosses he was deliberately delaying the project completion. We were never friendly but we did achieve a wary business relationship that worked. I think that is as good as you can expect under most project circumstances. Occasionally, you will encounter a true professional Resident Engineer that can be trusted, unfortunately that is much rarer than it should be.

Another tactic that is often used against you is the old bait and switch routine. This is where every one agrees to the change order pricing and then the negotiators come back with hat in hand saying that some higher up thinks the price is too high and they are ordered to renegotiate. This almost always occurs, amazingly, long after the work has been completed. Don’t fall for this ploy. In the first place probably no such person actually exists. In the second place there is only one reason to delay the demand for renegotiations until well after the work is complete. It is merely an attempt to cheat you. I usually tell them that I want to negotiate with the person that has the authority to sign off on changes, so you better get us into the same room if you want to have us do any more change order work. Also inform them that they can expect the price to increase because of the costs you forgot to include when you agreed to the original change order price. When forced to renegotiate, always present a higher price than you originally asked for, you may even get more, I have. In short it is best to eliminate this tactic on the first try or it will be a popular procedure every time you negotiate a change. Such tactics only waste your time and cost you money while lining the owner’s pocket.

In some instances you will not be able to arrive at an agreed price for your claim for extra work. If it involves a significant sum of money you may have little choice but to take the claim through the various legal steps. This may start with mediation, arbitration or go directly to court. In any event, try to make your best case right at the outset. Sometimes this means going the extra mile. On one job we build for a State highway agency we were building a 30 foot deep underdrain beside a major freeway. The outlet was a bored pipe outfall under the freeway. The specifications and plans called for the inlet end of the outlet pipe to be covered with nonwoven filter fabric. One night the site was hit with a torrential rain. When we arrived the next morning, the trench was full of water and a large crescent crack had extended into the freeway lanes. We had to bury our trench shield to prevent the road from collapsing. We completed the job using sheet piles. During a claim hearing the State Engineer testified that if we had prevented the muddy water form entering the trench, the filter fabric would not have clogged and caused the trench to flood. I knew that was not true, but that expert opinion testimony was very damaging to our case. So, I performed a scale model experiment and proved that clean domestic water would wash enough clay fines from the specified clean gravel filter material to completely clog the filter fabric. The state quickly settled our design error claim for over 90% of our payment request rather than go through binding arbitration.

In another case we had to go to trial over a dispute regarding the cost of cross country trenching versus the cost of trench in a city street. I was frustrated that we could not convince the owner of the difference in cost. I also realized that a judge was going to be totally confused by the spin the lawyers were applying to the facts. So I build a model of both situations. These models were made to scale complete in detail using miniature trucks, backhoe, loader, crew, traffic cones, etc. Then I explained the two processes in detail demonstrating the productions and costs associated with each example. I testified on direct examination for one day and the defense cross examined me for four days trying to break my testimony. We won the case.

Going to court should be a last resort. Trials are very expensive and will take years to resolve. Preparation for trial will consume months of your time. There is no assurance you will win your case. Even if you win, legal fees and delays may consume any moneys gained by the trial. In some jurisdictions you may not be able to recover legal and trial costs even when the case is decided totally in your favor. If you lose you may be required to pay the other party’s trial and legal costs. Taking your case to trial can be a huge and costly risk. Consider and analyze all other possible legal options with great care before proceeding with a law suit.

The opposing lawyers are going to do everything they can to confuse the issues and discredit your case. If you must take the witness stand, be prepared. Know the full scope of the work involved, refresh your memory on all the details. Rehearse your testimony with your attorney so that you will be prepared for cross examination. Give consistent and credible answers. You will often be asked leading questions such as: "Isn’t that operation very inefficient?" Of course the short answer is yes, but you can also answer: "The operation was as efficient as it could be under the circumstances imposed by the owner." Be prepared to defend that type of statement as to why greater efficiency could not be achieved under the actual circumstances.

Course Summary

Collection of payments is all too often a game of intimidation. Most of us just want to do our jobs and get paid for our efforts without having to resort to threats or legal action. Unfortunately, we must anticipate a potential lack of ethics from the owner and prepare for a battle to collect the payments that we have earned. By being knowledgeable and presenting an aggressive, no nonsense attitude to the owner in the beginning of the relationship will usually convince them you must be paid or there is going to be major trouble for them. In the long run it makes it much easier to do business when the tone of the working relationship is established at the outset. You carefully plan and manage the construction to facilitate an efficient, timely and quality completion of the project. That same diligent effort should be applied to getting paid. No project is successful if it does not collect the money it has earned.

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DISCLAIMER: The materials contained in the online course are not intended as a representation or warranty on the part of PDH Center or any other person/organization named herein. The materials are for general information only. They are not a substitute for competent professional advice. Application of this information to a specific project should be reviewed by a registered architect and/or professional engineer/surveyor. Anyone making use of the information set forth herein does so at their own risk and assumes any and all resulting liability arising therefrom.